Apple Isn’t the Problem; Wall Street’s Big Banks Are the Problem

Why is the Federal Trade Commission threatening Apple with a possible lawsuit for abusing its economic power, but not even raising an eyebrow about the huge and growing economic (and political) muscle of JP Morgan Chase or any of the other four remaining giant banks on Wall Street?

Our future well being depends more on people like Steve Jobs who invent real products that can improve our lives, than it does on people like Jamie Dimon who invent financial products that do little other than threaten our economy.

Apple’s supposed sin was to tell software developers that if they want to make apps for iPhones and iPads they have to use Apple programming tools. No more outside tools (like Adobe’s Flash format) that can run on rival devices like Google’s Android phones and RIM’s BlackBerrys.

What’s wrong with that? Apple says it’s necessary to maintain quality. If consumers disagree they can buy platforms elsewhere. Apple was the world’s #3 smartphone supplier in 2009, with 16.2 percent of worldwide market share. RIM was #2, with 18.8 percent. Google isn’t exactly a wallflower. These and other firms are innovating like mad, as are tens of thousands of independent developers. If Apple’s decision reduces the number of future apps that can run on its products, Apple will suffer and presumably change its mind.

On the other hand, the four largest U.S. financial institutions are so big and the rest of the economy so dependent on them that if one of them makes a bad decision it can take us all down. Between them they hold more than $7 trillion in assets, over half the size of the entire U.S. economy.

So why is the FTC nosing around Apple and not around Wall Street? Because the Federal Trade Commission Act allows the agency to stop “unfair methods of competition” almost anywhere in the economy except in the financial sector. Banks are explicitly excluded.

Another reason for financial reform.

And how are we doing on that front? Senate Dems and Republicans have just agreed to jettison a $50 billion fund in the financial reform bill that would have been used to wind down operations of a failing bank. Republicans had created a smokescreen by alleging that the fund could be used for more bailouts. They don’t want the public to see the real problem – that the biggest banks are so big that if one or two gets into trouble, the Fed or the Federal Deposit Insurance Company will almost certainly have to bail them out in order to protect the financial system. And this implicit guarantee allows them to make even riskier bets that generate even bigger profits – enabling them to grow even larger.

The only way to make sure no bank is too big to fail is to ensure no bank is too big. The biggest banks should be broken up. Senators Sherrod Brown (D-Ohio) and Ted Kaufman (D-Del) have introduced an amendment that would do exactly that. And a growing number of House members are getting ready to do the same.

This article first appeared on Robert Reich’s Blog. Republished with permission

Posted on May 6, 2010

About Robert Reich

Robert B. Reich is Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written eleven books, including The Work of Nations, which has been translated into 22 languages; the best-sellers The Future of Success and Locked in the Cabinet, and his most recent book, Supercapitalism. His articles have appeared in the New Yorker, Atlantic Monthly, New York Times, Washington Post, and Wall Street Journal. Mr. Reich is co-founding editor of The American Prospect magazine.

Reich has been a member of the faculties of Harvard’s John F. Kennedy School of Government and of Brandeis University. He received his B.A. from Dartmouth College, his M.A. from Oxford University, where he was a Rhodes Scholar, and his J.D. from Yale Law School.

Comments

Apple isn’t interested in the quality of the app. They’re just trying to discourage cross-platform development. Companies develop for the iPhone first, then consider Android, and that’s how Apple wants to keep it.

For two decades, Apple was in the “Android seat”. People developed for Windows first, and Mac OS second if at all. They know the power of being the top platform equates to economic security for Apple, and likely permanent marginalization for Android and Blackberry.

This is a side effect of the fact that the operating system is of relatively little value compared to the applications sold by the independent software vendors. MS and Apple have to pull teeth to get people to pay $150 for the OS (a high price BTW), but people who work with apps will pay $300 to $X thousands of dollars for application software.

The apps that ISVs sell are so valuable that Microsoft actually bribes companies to focus on Windows and not publish on other operating systems. Thus, a company will buy a specialized app that’s only available on Windows, so they leave Windows installed on the computer (or don’t buy a Mac). Then, they end up buying Microsoft Office too.

Apple tries this as well. Being a small competitor, they really can’t do the same with OS X. But they are trying it with iPhone.

As for whether their rule is legal or not – it shouldn’t be. If I buy a product, I should be able to combine it with another product, and use the combination.

If I had a Windows computer, should Microsoft be allowed to disallow Flash, competing C++ compilers, and other add-ons? Should software that runs only within a web browser be disallowed?

Obviously, the answer is “no”.

Not only that, but there’s some precedent. The DOJ prevented Microsoft from doing things that would have prevented Sun’s Java from running well on Windows, as well as offering a competing product identified as a version of “java” that didn’t work like Java.

Wellness

Carole Bartolotto: The problem with concluding that GMOs are safe is that the argument for their safety rests solely on animal studies. These studies are offered as evidence that the debate over GMOs is over. Nothing could be further from the truth.

Environmentalism

Walker Foley: Elected officials seem to think there’s only one side of this property rights argument. The people who live in these communities have rights too, but the oil companies seem to have the jump on [the politicians’] side of the fence.